Sunday, January 19, 2014

The Post-Crash Rebound, Not Job Growth, Drove 2013 Price Gains

In 2013, the housing markets with the biggest increases in asking prices were all rebounding from severe price drops in the housing bust. Home prices are still in rebound mode, but this effect will weaken in 2014. Job growth, in contrast, mattered little for price gains in 2013 but helped drive rent increases.

The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed.

Asking Prices Up 11.9% Y-o-Y in December, Slower Than in NovemberIn December, the year-over-year increase in asking home prices slowed for the first time since the price recovery began in early 2012: prices rose 11.9% year-over-year in December, compared with November’s 12.2% year-over-year increase. Asking prices rose 0.4% month-over-month, seasonally adjusted, the third straight month of gains less than 1%.

Quarter-over-quarter, prices rose 2.6% seasonally adjusted, which is also a slowdown from previous months. Quarter-over-quarter asking prices rose in 83 of the 100 largest metros and fell in 17, which is the most metros with quarter-over-quarter price declines in 10 months.

December 2013 Trulia Price Monitor Summary

% change in asking prices

# of 100 largest metros with asking-price increases

% change in asking prices,excluding foreclosures

Month-over-month,
seasonally adjusted

0.4%

Not reported

-0.5%

Quarter-over-quarter,
seasonally adjusted

2.6%

83

1.6%

Year-over-year

11.9%

98

11.3%

*Month-over-month change is December versus November. Quarter-over-quarter and year-over-year changes are three-month averages. Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.

Asking Prices in 2013 Rose Most in Hardest-Hit MetrosAll of the 10 metros with the largest year-over-year price increases in December were hard-hit during the housing bust. Asking prices fell by at least a third from peak to trough in these 10 metros, and by almost half or more in the three metros with the biggest price rebounds year-over-year: Las Vegas, Sacramento, and Riverside-San Bernardino.

Note: peak-to-trough price change from Federal Housing Finance Agency (FHFA). Change in employment from Bureau of Labor Statistics (BLS); November is the most recently published metro employment data. Among 100 largest metros. To download the list of asking price changes for the largest metros: Excel or PDF.

In most metros where the housing bust was milder, prices rose modestly year-over-year. The exceptions are Dallas, Houston, and Austin, where the housing bust was mild but prices experienced double-digit increases in 2013. West Palm Beach and several other Florida metros, in contrast, stand out for having had a severe housing bust but slower price gains in 2013 than most metros in California and Nevada.

The 10 metros with the smallest year-over-year price increases – or even declines – all had a milder housing bust than the 10 metros with the largest year-over-year price increases:

Note: peak-to-trough price change from Federal Housing Finance Agency (FHFA). Change in employment from Bureau of Labor Statistics (BLS); November is the most recently published metro employment data. Among 100 largest metros. To download the list of asking price changes for the largest metros: Excel or PDF.

Overall, regression analysis shows that recent price gains are most strongly associated with the severity of the local housing bust. Markets where prices fell most during the bust (roughly 2006 to 2011, but varies by metro) offered bargains for investors and other buyers who have helped bid prices back up over the past two years. A second important factor is foreclosures: adjusting for other factors, metros with a higher foreclosure inventory today – including many in Florida – have slower price growth. Job growth, however, had little impact on local home price gains in 2013: the relationship between job growth and price gains was positive but not statistically significant.

Therefore, year-over-year price gains in December 2013 are still primarily a reaction to the housing bust, but this rebound effect is fading as we enter 2014. Looking at the quarter-over-quarter price changes throughout 2013, the relationship between the severity of the housing bust and the recent price recovery was stronger earlier in the year than later in the year. More specifically, the correlation between peak-to-trough price change (FHFA) and the Trulia Price Monitor quarter-over-quarter change was -.59 in March; -.45 in June; -.43 in September; and -.33 in December. This correlation is moving closer to zero, which signifies that the rebound effect is fading.

As the housing market continues to recover, factors other than the rebound effect – like job growth – will matter more for price gains. That means slower but more sustainable price increases.

Rent Gains Driven More by Job GrowthIn December, rents rose 3.0% year-over-year nationally. Among the 25 largestrental markets, rents rose fastest in San Francisco, Portland, and San Diego. Unlike recent price gains, rent gains have a positive, statistically significant relationship with job growth. Of the five large rental markets with the biggest rent increases, four had job growth of 2% or more. But of the five large rental markets with rent declines or slowest increases, just one had job growth of 2% or more.

To download the list of rent changes for the largest metros: Excel or PDF

The next Trulia Price Monitor and Trulia Rent Monitor will be released on Thursday, February 6. Here’s the full 2014 release schedule:

Month

Release Date

January

Thursday, January 9 at 12:01AM ET

February

Thursday, February 6 at 12:01AM ET

March

Thursday, March 6 at 12:01AM ET

April

Thursday, April 10 at 12:01AM ET

May

Thursday, May 8 at 12:01AM ET

June

Thursday, June 5 at 12:01AM ET

July

Thursday, July 10 at 12:01AM ET

August

Thursday, August 7 at 12:01AM ET

September

Tuesday, September 9 at 12:01AM ET

October

Thursday, October 9 at 12:01AM ET

November

Thursday, November 6 at 12:01AM ET

December

Tuesday, December 9 at 12:01AM ET

How did we put this report together? To recap the methodology, the Trulia Price Monitor and the Trulia Rent Monitor track asking home prices and rents on a monthly basis, adjusting for the changing composition of listed homes, including foreclosures provided by RealtyTrac. The Trulia Price Monitor also accounts for the regular seasonal fluctuations in asking prices in order to reveal the underlying trend in prices. The Monitors can detect price movements at least three months before the major sales-price indexes do. Historical data are sometimes revised each month, and historical data in the current release are the best comparison with current data. Our FAQs provide all the technical details.